Summarizing, we can point toward a few key lessons:

The Fed has some influence over the growth rate of GDP through its influence over the money supply and thus AD. An increase in increases AD and a decrease in decreases AD.

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When faced with a negative shock to AD, the central bank can restore aggregate demand through an expansionary monetary policy. Monetary policy, however, is subject to uncertainties in impact and timing and getting it “Just right” is not guaranteed. Poor monetary policy can decrease the stability of GDP.

If in responding to a series of recessions, the Fed increases too much, it may find that it later has to contract when inflation becomes too high. Usually, this process—called a disinflation—is painful and it results in a recession. A disinflation goes best when the central bank has some degree of credibility in its attempt to set things right.

A central bank would like low unemployment and low inflation, but it is not always possible to achieve both goals. When a negative real shock comes, the Fed must choose between allowing low rates of growth, excessively high rates of inflation, or some combination of both. There is no easy way out of this dilemma.

Monetary policy is difficult in the worst of times and it’s not easy in the best of times. The Federal Reserve has significant power but that power is not always easy to wield. Sometimes the central bank itself contributes to booms that eventually lead to painful busts. How to recognize and respond to asset price booms is not obvious and the economics of asset price booms is unsettled.

Real shocks and aggregate demand shocks are always mixed and not easy to disentangle. The data on which central bankers operate are often slow to arrive and subject to revision. As a result, central banking is as much art as science.